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Geography, non-homotheticity, and industrialization: a quantitative analysis

Breinlich, Holger and Cuñat, Alejandro (2013) Geography, non-homotheticity, and industrialization: a quantitative analysis. Journal of Development Economics, 103. pp. 133-153. ISSN 0304-3878

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Identification Number: 10.1016/j.jdeveco.2013.01.005

Abstract

We propose a quantitative framework for the analysis of industrialization in which specialization in manufacturing or agriculture is driven by comparative advantage and non-homothetic preferences. Countries are integrated through trade but trade is not costless and geographic position matters. We use a number of analytical examples and a multi-country calibration to explain two important empirical regularities: (i) there is a strong positive correlation between proximity to large markets and levels of manufacturing activity; (ii) there is a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. Our calibrated model replicates these facts and also provides a better fit to cross-sectional data on manufacturing shares than frameworks which ignore the role of trade costs or non-homotheticity. We use the calibrated model to quantitatively analyze the effect of increases in agricultural productivity and a further lowering of trade barriers.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-develo...
Additional Information: © 2013 Elsevier B.V.
Divisions: Finance
Centre for Economic Performance
Financial Markets Group
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor > HD2329 Industrialization
JEL classification: F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
Sets: Departments > Finance
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 01 Sep 2014 14:48
Last Modified: 20 Mar 2019 02:17
Funders: Austrian Science Fund (FWF #AP23424-G11)
URI: http://eprints.lse.ac.uk/id/eprint/59311

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